Author: Jeffrey Christian's Wig
Compiled by: TechFlow TechFlow
Original link: https://x.com/silver207141/status/2019397406639493172
The silver market's experience at the beginning of 2026 was not ordinary volatility, but rather a classic symptom of a system under ultimate stress. Spot prices surged to a record high of $121 per ounce in late January, followed by one of the most devastating single-day crashes in commodity history, with a single-day drop of 31-36%. Although prices briefly rebounded above $100, they quickly returned to a downward trend. Futures contracts also descended into chaos, with the February 2026 contract plummeting 8-9% in a single day amid a chain of liquidations triggered by multiple margin increases (currently reaching 60%) on the Chicago Mercantile Exchange (CME).
While mainstream commentary attributes this to macroeconomic factors such as leveraged speculation, margin calls, and a strong dollar, underlying data reveals a more alarming fact: the physical silver market is experiencing extreme shortages, and the paper futures market is structurally unable to match the deliverable supply. The COMEX exchange, part of the CME Group, the world's largest metals futures and options trading platform, is facing a highly probable "delivery failure" scenario—primarily affecting the upcoming March 2026 contract.
Global silver supply has been in a state of continuous shortage for five consecutive years, with the deficit projected to approach 200 million ounces by 2026. Industrial consumption is growing far faster than mine production, driven by solar panels, electric vehicles, 5G infrastructure, AI hardware, and medical applications. China's designation of silver as a strategic asset and its export restrictions have cut off a major global supply source, accelerating the depletion of existing inventories.
Meanwhile, the United States has added silver to its Critical Minerals List and announced the launch of Project Vault to stockpile critical minerals. You wouldn't do this when silver is plentiful. Reports indicate that the Shanghai Vault's inventory has fallen to its lowest level since 2016.
Within the COMEX exchange, the figures are particularly grim. Since 2020, registered silver inventories (i.e., ready for immediate delivery) have shrunk by approximately 75%, currently hovering around 82 million ounces. While total inventories are close to 411 million ounces, the vast majority are classified as "Eligible," rather than immediately deliverable. In just one week in January 2026, over 33 million ounces were withdrawn, equivalent to 26% of the registered inventory disappearing in just a few days. February's delivery volume already reached 2,700 contracts (13.8 million ounces), and this growth shows no signs of slowing down.
Meanwhile, open interest for the March 2026 contract remained between 85,000 and 91,000 lots, theoretically representing a delivery demand of 425 million to 455 million ounces.
Data Comparison:
- Deliverable physical quantity: Approximately 82 million to 113 million ounces
- Paper short positions: 425 million - 455 million ounces
- Leverage ratio: Optimistically estimated at 5:1, and in extreme cases even exceeding 500:1.
Even if only 20% of open contracts require physical delivery (this is a conservative estimate based on historical experience), COMEX simply does not have enough physical metal to fulfill its obligations.
Price volatility itself is evidence of systemic fragility. The parabolic surge towards $121 was triggered by short covering and a short squeeze in an environment of liquidity depletion. The subsequent crash did not stem from a large-scale physical sell-off, but rather from the CME's forced margin increase, compelling leveraged participants to liquidate en masse. This kind of "market crash" often occurs with extremely low trading volume—sometimes selling just 2,000 contracts and then quickly buying them back can trigger a dramatic price swing, highlighting the long-term lack of liquidity.
The market has repeatedly seen "backwardation" and the "Exchange-for-Physical (EFP)" spread has widened to $1.10 per ounce. This strongly signals that physical demand is extremely urgent and that the paper market can no longer meet it.
Mathematics is ruthless. Paper silver in derivative form remains plentiful, but physical silver is becoming increasingly scarce. Volatility is not random noise, but a desperate attempt by the market to match the dwindling physical supply while the paper structure still pretends to be abundant.
Senior analysts have already sounded the alarm: March 2026 could mark the "funeral of COMEX." A delivery failure would not only be a story for silver; it would expose the long-standing vulnerabilities of fractional-reserve commodity futures trading and could trigger a chain reaction of shocks in global financial markets.
For astute investors, the message is clear: the disconnect between written promises and physical reality has reached a critical point. In this environment, physical silver held outside the system is becoming the only reliable store of value.
This game is far from over—the next wave of price increases may not be driven by optimism, but by the essential need to "have to buy."
